Copula-Based Assessment of Co-Movement and Tail Dependence Structure Among Major Trading Foreign Currencies in Ghana

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ID: 114513
2020
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Abstract
This paper examines the joint movement and tail dependence structure between the pair of foreign exchange rates (EUR, USD and GBP) against the GHS, using daily exchange rates data expressed in GHS per unit of foreign currencies (EUR, USD and GBP) between the time range of 24 February 2009 and 19 December 2019. We use different sets of both static (time-invariant) and time-varying copulas with different levels of dependence and tail dependence measures, and the study results reveal positive dependence between all exchange rates pairs, though the dependencies for EUR-USD and GBP-USD pairs are not as strong as the EUR-GBP pair. The findings also reveal symmetric tail dependence, and dependence evolves over time. Notwithstanding this, the asymmetric tail dependence copulas provide evidence of upper tail dependence. We compare the copula results to DCC(1,1)-GARCH(1,1) model result and find the copula to be more sensitive to extreme co-movement between the currency pairs. The afore-mentioned findings, therefore, offer forex market players the opportunity to relax in hoarding a particular foreign currency in anticipation of domestic currency depreciation.
Reference Key
mensah2020riskscopula-based Use this key to autocite in the manuscript while using SciMatic Manuscript Manager or Thesis Manager
Authors Prince Osei Mensah;Anokye M. Adam;Mensah, Prince Osei;Adam, Anokye M.;
Journal risks
Year 2020
DOI
10.3390/risks8020055
URL
https://doi.org/10.3390/risks8020055
Keywords
exchange rates depreciation appreciation copula tail dependence structure

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